The idea of ‘timing the bottom’ as applied to stock market investing is to find a stock and predict – before it happens – the last moment when a stock is at its lowest price in a given time period and starting buying in. The idea is that if a stock has reached its ‘true bottom’ you are making the absolute best possible starting point. The other side of the equation is to sell at the exact moment of peak prices, as well. If you can buy at the 52-week low and sell at the 52-week high, you will be maximizing your gains.
In truth, this is a difficult trick to achieve. A stock – particularly a large one – fluctuates a lot each day, with millions of shares being sold at different prices. The price can shift from second to second, and unless you are very lucky – or put some very good stop-limit guesses in there – you won’t manage to time your buying and selling perfectly.
The idea that you can maximize your income through massive amounts of effort (or luck) around the fringes has always been foreign to me. Take credit card arbitrage. It’s not a tremendous amount of work, depending on how you define “tremendous,” but there is a lot of risk involved and the extra income generated is not that great in most cases. Many people are willing to day trade, or work on side jobs like blogging that make pennies on the hour, hoping to time the bottom. I’ve seen a lot of bloggers come and go, thinking that with a few lucky links and some clever SEO they’ll become the next six-figure blogger. All of that time and effort is probably better spent maximizing (existing) job skills, or working on building a business or learning how to invest long-term.
The truth is that in life it’s better to attack problems without attempting to time the ‘perfect time’ to attack them. Waiting until you have ‘just enough’ money saved to start that business? Likely you’ll wait forever. Waiting until you’re feeling ‘good enough’ to start exercising? Delaying asking for that raise until your boss is in a good mood? All are examples, and you could go on forever. Bubelah and I have a favorite: all of our friends with one kid who are ‘waiting for a good time’ for a second one. A little secret: every time is a good time, and every time is a bad time. If you want two kids, have two kids. Money may be a little short today, and sleep may be erratic, but you know what? It will be that way whenever you have a second kid, no matter if you wait 10 years or do it tomorrow.
So don’t try to organize your life around waiting for the best moment. Life is full of ‘80% right’ moments, but there is a paucity of ‘100% right’ moments. If you decide you want something, go get it. Don’t waste time on small efforts to bring you to the ‘right moment’ or wait until that ‘right moment’ appears. Finance will teach you that it’s much better to make $100 today and start earning interest on it than making $1000 15 years from now. Take your small gains and run with them.